Mike Jones: BNZ Chief Economist on the unemployment rate rising to 5.2%, expected OCR cut

Rising unemployment is expected to add to the case for a lower OCR. 

Unemployment's hit a five-year high of 5.2% and is expected to rise further. 

Economists now broadly expect the Reserve Bank to cut the Official Cash Rate by another 25-basis-points to 3% in two weeks. 

BNZ Chief Economist Mike Jones told Mike Hosking further cuts now seem likely. 

He says his team have been forecasting a neutral rate of 2.75% for years, but there's a chance the OCR could get to 2.5 percent in the current cycle. 

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Episode Transcript

Speaker 1 (00:00):
We got job to the headline at five point two
wasn't as bad as the five point three forecast, although
Auckland at six point one. I mean, come on, Mike Jones,
B and z's chief economist is back. Well this Mike
morning to you.

Speaker 2 (00:10):
Good morning.

Speaker 1 (00:11):
So five two better than five three. Obviously open the hood.
Though there's a lot to be depressed about, isn't there.

Speaker 2 (00:16):
Yeah, Look, you didn't have to scratch too far below
the surface to find some conclusions that were probably but
weaker when you put them all together in terms of
what we're expecting in the labor marketing. Auckland, as he said,
was probably one that's twelve year high. And of course
the whole reason unemployment and rise by more is that
the participation rate fell to a four year low and
more people leaving the labor force. Hardly a positive signal.

Speaker 1 (00:40):
No, six point one. How bad's that for Auckland. I mean,
that's the allegedly the engine room of the country.

Speaker 2 (00:45):
Yeah, forty percent of the concrete output comes out of Auckland,
and that's six point three percent at a Twelvey high.
Is concerning. I mean, it does give you a sense
of just a divergence up and down the country as well.
I mean it's hargo two point nine percent, so you know,
quite a big difference. But it does give you a
bit more evidence that in totality the lab market is

(01:08):
not in good shape and certainly weak. And I think
what the Reserve Bank had expected.

Speaker 1 (01:13):
Exactly are they stuck in their building in Wellington? Are
I mean, yes, they'll get the numbers, but I mean
I happen to live in Auckland, as I assume you do.
You can feel it, you can see it. You know
it's bad, and they don't seem to be reflecting that
at the RB and on the terrace.

Speaker 2 (01:28):
Well, the Artb's in Wellington and if anything thinks down
there are probably worse. It's certainly Auckland and Wellington the
urban centers that are feeling this the most. And of
course we're waiting for some of the more upbeat sentiment
and the rural reasons to spread back to the cities.
Hasn't happened so far. Look, I think what this does
for the Reserve Bank is is it locks in another

(01:49):
cut in a couple of weeks time. I think that
was pretty likely anyway, But the fact that we've got
the start of coming gone. Now we can we think
that that almost sales the deal for one more and
probably two more.

Speaker 1 (02:00):
Rate cups, Yes, exactly two more after that, or so
you've got the one coming this month plus two more
after that. I've got two point five is neutral? Now, Yes,
you say two seven five.

Speaker 2 (02:10):
We've been saying to seventy five for the UST a
couple of years now. So we're stuck with that two
point five. Definitely within the realms. I think it's gone
to our heads. If we had our TV, seventy five
would say to the risks at the moment are tilting
more to the down to the up. But there's also
a lot of water to go into the bridge before
we get to that final meeting in November.

Speaker 1 (02:30):
And some of that water, though, was alluded to, I
think by Nicola Willis yesterday who said this isn't the
end of it. I mean yesterday's discussion was could this
be the worst the answers know, isn't it? I mean
there's more to come.

Speaker 2 (02:40):
Well, the problem that we've got is that we're still
in this stumbling stop start sort of economic recovery, and
any time we get a fit that there as we
seem to be in at the moment with this mid
year ear pocket, it just bushes back the timing of
when you might expect that labor market to start turning around.
So I think we've talked about this before, but we
think that story is sliding probably into the first part

(03:01):
of next year and when you might start to see
unemployments Headlile rocking.

Speaker 1 (03:05):
All right, nice to talk to you, Mike. As always,
that's that part of the story is sliding into next year.
So so forget twenty five folks.

Speaker 2 (03:13):
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